MFA Musings: 7/16/18

16

The world is full of naysayers. It is easy to say one cannot do something versus actually getting up off of the couch and doing it yourself. And, just as I give the advice, I will be reminded that I thought the French would never win the World Cup and Tesla would never increase production. Congratulations France on a 4-2 victory! Along the same line, Elon Musk is smiling as he is now producing over 5,000 Tesla Model 3 sedans a week. This is an amazing accomplishment that many said he would not achieve. Remember, believe in yourself and go for it.

And so, I enjoyed eating my lunch bet winnings as the 10-Year/2-Year Treasury Yield spread narrowed to below 30 basis points. This is what we call a flat yield curve.

If the yield curve between the 2-year US Treasury to the 10-year US Treasury becomes inverted, the clock starts ticking towards a recession. Historically, an inverted yield curve has been the best predictor of a recession. Roughly 18 months after the inversion we tend to have some sort of a slowdown in the economy.

The inflation rate as measured by the Consumer Price Index without food and energy rose at a pace of 2.30% over the past year. Inflation is building, albeit at a slow pace.